Avigdor Lieberman, the outspoken far-right Israeli politician, is set to be appointed his country's next foreign minister in a new coalition deal.

Lieberman, head of the Israel Our Home party, signed a preliminary agreement with the Likud leader Binyamin Netanyahu, who is expected to become prime minister within days. Under the deal, agreed late on Sunday night, Lieberman would be both foreign minister and a deputy prime minister, giving him an important influence in shaping the new government's policies.

His party would also have four other ministers in the cabinet, including national security minister, as well as the post of deputy foreign minister.

Netanyahu still has to sign agreements with the other smaller parties that would make up his government, but it appears increasingly likely he will lead a narrow rightwing coalition that could take power later this month.

In February's elections Tzipi Livni, of the centrist Kadima party, emerged the winner, but the overall strength of the rightwing bloc meant Netanyahu, who came a close second, was asked to form a government. Despite new efforts in recent days he has not been able to agree a broader unity coalition with Livni that might have offered him more stability. Talks continue between the two camps behind the scenes, but Livni seems likely to join the opposition.

Both Netanyahu and Lieberman have stopped short of endorsing a two-state peace agreement with the Palestinians, which may set them at odds with the international community, particularly the Obama administration which has promised to "aggressively" pursue a lasting peace between Israel and the Palestinians.

Lieberman, 50, a Russian-speaking immigrant born in Moldova, resigned from the government in January last year in protest at the restarting of peace talks with the Palestinians, saying: "Negotiations on the basis of land for peace are a critical mistake ... and will destroy us."

He is an unashamed hardliner who campaigned on the promise of a new law aimed at the country's Arab minority which would require Israelis to swear an oath of loyalty to Israel as a Jewish state or lose their citizenship.

He also advocates carving out part of the Galilee that is home to Arab Israeli villages and handing it over to Palestinian control, stripping the residents of their Israeli citizenship. Those policies proved popular enough for him to come third at the polls, but the oath of loyalty is thought unlikely to come into law.

The agreement between Netanyahu and Lieberman gave a taste of the policies that would follow. "Toppling the Hamas government in the Gaza Strip will be an Israeli strategic goal," the agreement said. The new government would act "with determination" to stop rocket fire by militants in Gaza.

It also said: "The government will not conduct political negotiations with terrorist organisations or terrorist elements."

Settlements are likely to continue to grow – Lieberman himself lives in Nokdim, a settlement south-east of Bethlehem in the occupied West Bank.

Netanyahu has said the current peace talks with the Palestinians will not succeed and that he would rather pursue an "economic peace", by which he means financial investment in the occupied West Bank.

He also intends to make Iran the centre of his foreign policy. The agreement said: "Israel will make every effort, especially with regard to the international community, to prevent the nuclear armament of Iran, while emphasising that a nuclear Iran, representing a danger to Israel, countries in the region and the entire free world, is unacceptable."

Lieberman's elevation to the foreign ministry is likely to bring some difficult responses internationally. Javier Solana, the EU's foreign policy chief, said Europe still supported a two-state peace agreement. "We will be ready to do business as usual, normally with a government in Israel that is prepared to continue talking and working for a two-state solution," he said. "If that is not the case, the situation would be different."

Riad Malki, the Palestinian foreign minister, said: "We have to declare that sadly there is no partner on the Israeli side to negotiate with."

Former nightclub bouncer who talks tough

If Avigdor Lieberman becomes Israel's next foreign minister, as now seems likely, his hardline positions could make for awkward meetings when he sits down with his international counterparts, among them David Miliband and Hillary Clinton.

Both Britain and the US advocate a two-state peace agreement for the Middle East, which would see the creation of an independent Palestinian state living peacefully alongside Israel.

However, Lieberman, an immigrant and former nightclub bouncer from former Soviet Moldova, does not talk about Palestinian independence. Instead, his party's vision on the two-state solution states: "Israel needs to explain that the demand for a Palestinian state and the refugees' right of return is a cover for radical Islam's attempt to destroy the State of Israel." Lieberman was a member of the current Israeli government, but walked out in January last year as soon as peace talks restarted with the Palestinians.

Britain, in particular, is critical of Israel's settlements in east Jerusalem and the West Bank, all of which are illegal under international law. But that cause might be harder to argue in future given that the almost 500,000 Israeli settlers include Lieberman and his family, who live in Nokdim, deep inside the West Bank.

Lieberman's main target has been his country's own Arab minority, who make up a fifth of the population, and of whom he has said: "Israel is under a dual terrorist attack, from within and from without. And terrorism from within is always more dangerous than terrorism from without."

It was this campaign, particularly his call for Arabs to swear an oath of loyalty to Israel as a Jewish state, that won him so much support in the elections. He has even suggested that some elected Arab MPs in the Israeli parliament should be tried for treason and then executed.

He also appeals to more secular Israelis, arguing in favour of civil marriages, as well as advocating a more presidential style of government.